M/s. HPP Energy (India) Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 4138/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86979 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 18-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 05-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T VASANTHAN
• Assessee Lawyers: R S ADALAKHA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SH. R.S. SYAL, A.M. & SH. C.M. GARG, J.M. ITA NO. 4138/DEL /2013 ASSESSMENT YEAR: 2009 - 10 M/S HPP ENERGY (INDIA) PVT. LTD. VS. ACIT, CIRCLE 12(1), B - 156, FREEDOM FIGHTER ENCLAVE, NEW DELHI NEB SARAI, NEW DELHI - 110368 (PAN: AAACH1838C) (APPELLANT) (RESPONDENT) APPELLANT BY : SH. R.S. ADALAKHA, ADV. RESPONDENT BY: SH. T. VASANTHAN, SR. DR DATE OF HEARING: 18.03.2015 DATE OF PRONOUNCEMENT: 20 .03.2015 ORDER PER R.S. SYAL, A.M. : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE CIT(A) ON 23.04.2013 IN RELATION TO THE ASSESSMENT YEAR 2009 - 10. 2. THE ONLY ISSUE RAISED BEFORE US IN THE EXTANT APPEAL IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF EXPENSES MADE U/S 14A OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ). BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE EARNED CERTAIN EXEMPT INCOME AND DID NOT OFFER ANY D ISALLOWANCE UNDER SECTION 14A . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO FURNISH THE DETAILS OF EXE MPT INCOME AND THE CORRESPONDING DISALLOWANCE UNDER SECTION 14A OF THE ACT. THE 2 ITA NO. 4138/DEL /2013 AY: 2009 - 10 ASSESSEE SUBMITTED THE REASONS FOR NOT MAKING ANY VOLUNTARY DISALLOWANCE UNDER SECTION 14A IN RESPECT OF THE EXEMPT DIVIDEND INCOME OF RS. 18,09,961/ - . THE ASSESSING OFFICER, AFTER REPRODUCING THE ASSESSEE S EXPLANATION DEALT WITH THE ISSUE AS UNDER: THE ASSESEE S REPLY HAS BEEN CONSIDERED AND FOUND TO BE UNACCEPTABLE. THE ASSESSEE CANNOT DENY INVOLVEMENT OF HUMAN ACUMEN FOR WHICH AN APPROPRIATE DISALLOWANCE HAS TO BE MADE AS PER RULE 8D OF THE I.T. ACT, 1961. IN THIS CASE THE AVERAGE OF OPENING AND CLOSING BALANCES AS ON 01.04.2008 AND AS ON 31.03.2009 RESPECTIVELY ARE RS. 7222670 0/ - & RS. 77328164/ - . THE AVERAGE COMES TO RS. 74777432/ - . HENCE, A DISALLOWANCE AS PER RULE 8D I.E. 0.5% OF THE AVERAGE INVESTMENTS WHICH IS RS. 378887/ - IS MADE AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. SINCE I AM SATISFIED THAT THE ASSESSEE HA S FURNISHED INACCURATE PARTICULARS OF ITS INCOME, PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) ARE BEING INITIATED SEPARATEL Y. 3. THE L EARNED CIT(A) SUSTAINED THE ADDITION. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RE CORD. THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2009 - 10. THE PROVISIONS OF RULE 8D ARE APPLICABLE FOR THIS ASSESSMENT YEAR FOR MAKING ANY DISALLOWANCE UNDER SECTION 14A OF THE ACT. HOWEVER, THE PROVISIONS OF SECTION 14A ARE TRIGGERED WHEN THE ASSESSING OF FICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE CLAIMED TO HAVE BEEN INCURRED IN RELATION TO INCOME , WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE A CT. SECTION 14 A (2) CATEGORICALLY PROVIDES THAT THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE 3 ITA NO. 4138/DEL /2013 AY: 2009 - 10 PRESCRIB ED, IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS AC T . THE PROVISIONS OF SUB - SECTION (3) O F SECTION 14A PROVIDE THAT THE PROVISIONS OF SUB - S ECTION ( 2 ) SHALL ALSO APPLY IN RELATION TO A CASE WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. A CONJOINT READING OF SUB - SECTION S (2) AND (3) OF SECTION 14A MAKES IT MANIFEST THAT THE ASSESSING OFFICER IS FULLY EMPO WERED TO COMPUTE DISALLOWANCE UNDER SECTION 14A AS PER RULE 8D WHERE HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE ASSESSEE S CLAIM OF EXPENSES INCURRED OR NOT INCURRED IN RELATION TO EXEMPT INCOME. HOWEVER, T HE PRE - REQUISITE FOR INVOKING THE MANDATE OF SECTION 14A IS THE RECORDING OF SATISFACTION BY THE ASSESSING OFFICER AS TO THE INCORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED OR NOT INCURRED IN RELATION TO THE EXEMPT INCOME. UNLESS SUCH SATISFACTION IS RECORDED, THERE CAN BE NO QUESTION OF COMPUTING ANY DISALLOWANCE UNDER SECTION 14A OF THE ACT . THIS PROPOSITION IS SUBJECT TO ONE CAVEAT DISCUSSED IN THE ENSUING PARA. 5. THE HON BLE SUPREME COURT IN CIT VS. KANPUR COAL SYNDICATE, (1964) 53 ITR 225 (SC) WHILE DEALING WI TH THE SCOPE OF POWERS OF THE FIRST APPELLATE AUTHORITY VIS - - VIS THE ASSESSING OFFICER HAS HELD THAT THE POWERS OF THE CIT(A) ARE CO - TERMINUS WITH THAT OF THE ASSESSING OFFICER INASMUCH AS HE CAN DO WHAT 4 ITA NO. 4138/DEL /2013 AY: 2009 - 10 THE ASSESSING OFFICER CAN DO AND ALSO DIRECT HIM TO DO WHAT HE HAS FAILED TO DO. SIMILAR VIEW HAS BEEN REITERATED BY THE HON BLE SUPREME COURT IN THE CASE OF JUTE CORPORATION OF INDIA LTD. VS. CIT, (1991) 187 ITR 688 (SC) BY PROVIDING THAT POWER OF THE AAC IS CO - TERMINUS WITH THAT OF THE ITO. IN VIEW OF TH ESE PRECEDENTS , IT IS MANIFEST THAT IF SOME DEFICIENCY IS LEFT BY THE ASSESSING OFFICER IN MAKING AN ASSESSMENT , THEN THAT CAN BE MADE GOOD BY THE CIT(A). COMING TO THE CONTEXT OF SECTION 14A AND THE REQUIREMENT OF RECORDING SATISFACTION BEFORE INVOKING TH E MANDATE OF RULE 8D, WE HAVE NO HESITATION IN NOTING THAT IF THE ASSESSING OFFICER FAILS TO RECORD SATISFACTION IN TERMS OF SUB - SECTIONS (2) AND (3) OF SECTION 14A AND THE LEARNED CIT(A) MAKE S GOOD SUCH DEFICIENCY BY RECORDING PROPER SATISFACTION, THEN THERE CANNOT BE ANY EMBARGO ON THE MAKING OF DISALLOWANCE U/S 14A . IF, HOWEVER, NEITHER THE ASSESSING OFFICER NOR THE CIT(A) RECORD SUCH SATISFACTION AS ENVISAGED UNDER SUB - SECTION S (2) AND (3) OF SECTION 14A , THEN T HE DISALLOWANCE UNDER THIS SECTION CANNOT FOLLOW. 6. WE HAVE REPRODUCED THE RELEVANT DISCUSSION MADE BY THE ASSESSING OFFICER IN AN EARLIER PART OF THE ORDER FROM WHICH IT IS PALPABLE THAT NO SATISFACTION WAS RECORDED TO SATISFY THE MANDATE OF SUB - SECTIO NS (2) AND (3) OF SECTION 14A. THE POSITION CONTINUE D TO REMAIN SAME BEFORE THE LEARNED CIT(A) AS WELL , WHO ALSO SIMPLY UPHELD THE VIEW TAKEN BY THE ASSESSING OFFICER WITHOUT MAKING GOOD THE DEFICIENCY LEFT BY THE ASSESSING OFFICER. THE POSITION WHICH, TH EREFORE, EMERGES IS THAT NEITHER THE ASSESSING OFFICER NOR THE LEARNED 5 ITA NO. 4138/DEL /2013 AY: 2009 - 10 CIT(A) RECORDED THE REQUISITE SATISFACTION AS REQUIRED UNDER SECTION 14A. IN THE ABSENCE OF SUCH SATISFACTION , THERE CAN BE NO DISALLOWANCE AS PER SECTION 14A. IN THESE PECULIAR FACTS W HEN THERE IS A DEFICIENCY IN RECORDING SATISFACTION, MUCH LESS A PROPER SATISFACTION, IN TERMS OF SUB - SECTION (3) READ WITH SUB - SECTION (2) OF SECTION 14A, WE HOLD , THAT NO DISALLOWANCE COULD HAVE BEEN MADE OR SUSTAINED ON THIS SCORE. AS SUCH, WE ORDER FOR DELETION OF ADDITION OF RS. 3.78 LAC MADE UNDER SECTION 14A OF THE ACT. 7 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. THE DECISION IS PRONO UNCED IN THE OPEN COURT O N 2 0 T H MARCH, 2015. S D / - S D / - (C.M. GARG) (R.S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 0 T H MARCH, 2015. RK/ - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI